Power and strategy fit like hand in glove. While power – and sometimes strategy – may have negative connotations to some at times, this article is simply about the raw truth. The truth is that organizations, like people, need to do well in order to survive and thrive, and it helps immensely to be in tune with power and strategy conceptually. Add excellent implementation and you have an unbeatable combination.
This article is an introduction to this topic of power and strategy, and I will link to additional articles as they are posted.
Moats and Their Importance
When I talk about power in this article, I am thinking of it in terms of ‘moats’. Conventional wisdom says that to have a good business, you need to build a moat around it. Building a moat around your business means protecting it. You strive to build barriers to competition that will enable your business to survive and thrive. This in turn allows the business to best support its customers, its employees, and the community, including its owners, with a higher level of stability.
Every good business has a moat of some sort. There can be a single moat, or several moats that together form a barrier that protects the company using natural forces. You can be sure that any good business has a moat of some sort, as that is what creates a higher and more stable value for the business.
Moats enable a business to continue to improve, to continue to serve more and better, and to continue to create increasing value for all stakeholders.
The 7 powers are general and refer to types of things that can be done to build a moat around a business. Let’s explore the 7 powers framework, a simple and convenient way for businesses of any type to look at building a moat.
What Are the 7 Powers?
One way of looking at moats in great detail is to look at the strategic powers that can be created to building competitive advantage. Referencing “7 Powers: the Foundations of Business Strategy” by Hamilton Helmer – a very insightful, interesting and ‘powerful’ book – the following are the 7 powers:
- Scale economies refers to the occurrence of declining unit costs with increased size (scale) of the organization. The degree of power relates to the intensity of the cost decline relative to increase in size, and the scale in terms of some measurement of size of the organization.
- Network economies occur when the value of the product or service increases as the number of users increases. The degree of power relates to the intensity of the increased value added for each new user, and the number of engaged users within the organization.
- Counter-positioning is where an alternative approach in the form of a new and better business model is put to work in an existing industry. The degree of power relates to the new model’s financial viability, and the degree to which it can win business from new or existing customers of the current competitors. Success will relate to the short-term unattractiveness of the new business model versus to current competitors relative to the old industry business model.
- Switching costs occur when the buyer loses compatibility, with a quantifiable financial cost, across multiple purchases of the same or related products from the same supplier over time. The degree of power relates to quantified financial switching costs, and the number of customers that could face those switching costs
- Branding is where there is an emotional effect based upon information communicated, factual or perceived, that results in the consumers’ willingness the pay more for the product. The degree of power relates to an objectively measured value of the brand effect – it could be the price and volume differential compared to the competition – and the duration of the brand.
- Cornered resource occurs when an organization gains exclusive access to superior resources. The degree of power relates to the financial impact – lower cost, higher pricing, or increase in volume sold – of the cornered resource, and the degree of impact that can be directly attributed to the cornered resource(s).
- Process power refers to advantages of unique internal processes which are hard to replicate and that lower costs or increase value for the products or services. The degree of power relates to the impact of the process advantages, and the time horizon, costs, and other challenges required of would-be competitors to implement the deep changes required to replicate those processes.
Let’s look further at how these 7 powers are uniquely applicable.
7 Powers Applicability
The 7 powers listed above are intended for wide applicability in the business world as a handy internalized reference for strategic thinking. The idea is to internalize the 7 powers and what they mean, and especially to be able to recall and spot applicability within your particular situation. The key to understanding the 7 powers is to recognize that there are potential situations where returns and profitability can be increased substantially and sustainably. It is important to identify the specific powers that are applicable to each business and work them for the benefit of all stakeholders involved.
7 Powers Applied to Project Management
There are two areas that immediately hit me as important for applying the 7 powers: 1. In understanding the purpose of your project, how it might map to one or more of the 7 powers, and how it might map to one or more strategic drivers behind your project; and 2. Thinking about how project management processes might apply within your organization, specifically related to ‘process power’.
I recommend these PM templates (paid link):
1. Project Purpose – For identifying the power(s) that are the drivers behind your project – those powers that are being used to build sustainable competitive advantage for your organization – consider the following chart.
Choose which of the seven powers on the left apply to your organization, and think about how your project might support them. The columns can help you think through that process. Think about the benefits to your organization in the ‘Benefits to Us’ column and document them.
By ‘Benefits to Us’, I mean power derived. For example, if your organization has a Cornered Resource, consider the benefits such as ability to deliver superior products and services, or ability to win additional contracts.
The ‘Barrier to Them’ refers to the barrier that limits or outright prevents your competition from encroaching on this space. For the same ‘Cornered Resource’ example, it could be that because they do not have access to a particular resource, they are not capable of winning certain contracts or delivering a level of quality required.
In short, the idea is to choose the one or two powers that apply to your company and are supported by your project and dig deeper. The last column, ‘Metrics Needed’, refers to the threshold value for some factor that provides the power needed for competitive advantage. For example, if the power is Scale Economies, it could be the volume of product sold that is needed to achieve the competitive advantage – and to leverage that specific power. Similarly, if the power is Network Economies, it could be the number of engaged users on the platform.
2. Project Management Competency – Building a strong project management competency is a Process Power – #7 on the list of 7 powers. That applies especially those that are project driven – where they are actually in the business of doing projects for others. The Project Business Foundation actually addresses that type of situation – where doing projects is the business – directly with programs, standards, training, community and more. While the Project Management Institute (PMI) seeks to build competency and consistency across the profession of project management, much of the application of project management comes inside organizations, on internal projects.
Project management competency can be a process power in either case above: in the case where doing projects for others is the business, and in cases where internal projects support and advance the organization.
Power and Strategy – the Takeaway
This is a high level overview of interplay of power and strategy, and I plan to delve into these further in future posts. The subject of power and strategy takes some study, but it also is derived from numerous other frameworks for strategy, so that makes it easier to digest. The 7 powers get to the core of strategy – to gain competitive advantage. They get to the core topics of producing greater value, increased value, and sustainability. The ‘7 powers’ is a framework that is meant to be internalized and mastered for quick applicability to business situations.
To learn more, you can purchase “7 Powers: The Foundations of Business Strategy” by Hamilton Helmer as follows:
- Hard cover book: 7 Powers: The Foundations of Business Strategy
- Audio book: 7 Powers: The Foundations of Business Strategy
- Kindle book: 7 Powers: The Foundations of Business Strategy
I recommend these strategy resources (paid link):